For this article, we will discuss the advantages and disadvantages of deficit spending in the context of government, where a governing body of a nation that is in recession needs to borrow heavily from other nations or financing entities in order to spend on infrastructure. A government budget is an annual financial statement which outlines the estimated government expenditure and expected government receipts or revenues for the forthcoming fiscal year. In financial planning or the budgeting process, a balanced budget means that revenues are equal to or greater than total expenses. Austerity is defined as a state of reduced spending and increased frugality. In addition, If a country is found itself low educational level accompanied with weak culture of accountability, it would hardly possible for the poor to participate in local affairs and hence it little/ or no impact on poverty reduction. The nature of social institutions and the extent and existence of the doctrine of check and balance might contribute a favorable environment or hindered the participation of poor groups in particular and on poverty reduction process in general. THE BUDGETING PROCESS 1. The 2011 U.S. Debt Ceiling Crisis was a contentious debate on the borrowing limit of the United States government in July 2011. The Adam Smith Institute’s Tax Freedom Day spotlights the large portion of every year during which we work for the government. Those who argue in favor of a balanced budget claim the growing federal debt will have harmful effects in the future. The annual budget covers three spending areas: 1. Investment and expenditure are some of the most prominent factors contributing to the growth of a nation’s economy. A government budget is an annual financial statement which outlines the estimated government expenditure and expected government receipts or revenues for the forthcoming fiscal year. Budgets provide benefits both for the business, and also for its managers and other staffs: The budget assists planning – Once the business objectives are set and formalized through a budget, it can b ensured that the other business plans are also achievable. A minority of economists are gaining attention with the argument that it doesn't matter whether a government that prints its own money balances its budget. They specify the resources, revenues, and activities required to carry out the strategic plan for the coming year. Here are four we see as important: 1. Still other economists, currently in the minority, argue that government budget deficits don't matter—up to a point. Without government borrowing, demand would fall by more. Incremental budgeting is an important part of management accounting based on the premise of making a small change to the existing budget for arriving at the new budget. A country with low national income makes fewer resources available for poverty reduction. Many mainstream economists don't believe that the U.S. government debt requires urgent attention in the form of a balanced budget. Its government's role to promote efficiency. Depending on the feasibility of these estimates, budgets are of three types -- balanced budget, surplus budget and deficit budget. Governments can remove the need of paying interest by converting their national debt into money. Advantages of a budget deficit are that “government borrowing can benefit the economy if it is used to finance extra capital spending that leads to an increase in the stock of national assets” (tutor2u.com, n.d.). Few issues are more contentious in contemporary American politics than the federal government's budget. Budgets provide an internal control. This is in contrast to the batch production process followed by ACC which accommodated greater customer flexibility but at the cost of efficiency with some product lines being as long as 1.5 to 2 days Advantages of Budgeting: Budgeting plays an important role in the effective use of resources and achieving overall organisational goals. When done properly, budgeting can help you control your spending, identify gaps, and (hopefully) increase your savings rate. It helps in planning and managing the delivery of services in the future. One reason economists caution against taking drastic measures to balance the budget is the impact it would have on the economy. Indeed, there are both advantages and disadvantages of budgeting. It simply focuses on the acquisition cost and its depreciation. A better managed budget will lead to a better quality of life and successfulness of the entire economy. If there is a downturn in the economy, there will automatically be a fall in taxation and higher govt spending on benefits, this will cause a budget deficit. According to Bissessar (2010), budget has multiple dimensions. Interest on the debt, which usually uses less than 10 percent of all funding 3. Borrowings and issuance of securities are external financial sources. Budgeting offers several financial advantages to the typical consumer and only minor drawbacks. The interest rates matter as well, and a higher interest will force them to think of plans to pay back the debt as soon as possible. Budgets, in their simplest form, compare money earned and … ADVERTISEMENTS: Advantages and Limitations of Budgeting! The publication of a budget thus performs the role of generating accountability for the actions of government at various levels. Perhaps the most obvious benefit of a budget is this: It allows … This has subsequently led to lower quality losses of 0.7% over total production in comparison to ACC’s 1.6% (Exhibit. However, there are several advantages of TBS which are (Rauf et al.. Unlike ACC, which adopts end product inspection techniques for quality control, DJC follows a process-centric model where each process is monitored for quality. Government debt, public debt, national debt and sovereign debt are mostly terms used to express the amount of debt possessed by a central government. Budget deficit and deficit spending are exactly the same, which is exceeding the amount that was previously put in place to spend. It is based on line item expenditure or objects of expenditure. Advantages of Budgeting: Budgeting plays an important role in the effective use of resources and achieving overall organisational goals. Therefore in order to achieve those objectives, government need to have an adequate supply of money and spend it efficiently (Bissessar, 2010). There should be flexibility to provide for individual initiative and drive. A budget can be advantageous because it: Links objectives … - Selection from Budgeting Basics and Beyond [Book] The chief advantage of a federal balanced budget amendment is that it reduces federal debt because it requires the government to operate without a deficit. The borrowing enabled the government to bailout the car industry and provide automatic fiscal stabilisers. Otherwise, the budgeted expenditure will be reduced to ensure it is within the allocation budget. Federal agency funding, called discretionary spending—the area Congress sets annually. But most mainstream economists argue this would be a risky way to tackle the debt, one that could hamstring the government in times of economic crisis or other emergencies when additional spending is required. The total expenditure should not exceed the pre-determined total allocation. The federal government’s fiscal year runs from October 1 of one calendar year through September 30 of the next. Copyright © 2020 IPL.org All rights reserved. Indeed, there are both advantages and disadvantages of budgeting. If there is a downturn in the economy, there will automatically be a fall in taxation and higher govt spending on benefits, this will cause a budget deficit. Budgeting forces the management to study about the problems relating to the timely implementation. Advantages and disadvantages of a budget deficit (2019 update) Print page In other words, it receives more in taxes than it spends on defence, welfare, or education. Budgets translate strategic plans into action. Advantages of a Program Budget. It has the following advantages. 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